Yes, I know it is a bit weird but I actually read speeches by Tax Office officials. Sad but true. Late last month there was a speech by Tax Commissioner Chris Jordan that contained a few gems of information and flagged a tougher approach by the ATO to collection of tax arrears. Surprisingly for some, I have often banged the drum that the ATO is very understanding of tax payers that fall into arrears – that is, significantly more understanding than I would be if I were owed the money! Well some of that generosity is being wound back apparently.
So here are some quotes from Mr Jordan:
“We will be taking legal action earlier when warranted. This means initiating bankruptcy and wind-up action where there is evidence that a taxpayer is insolvent, and looking to use other statutory powers where businesses have failed to pay employee superannuation entitlements or pay amounts held in trust. In the past we have waited for a taxpayer’s debt to escalate to on average over $300,000 before initiating bankruptcy proceedings, compared to other creditors who often take action at around an average of $35,000. For corporates, we wait for their debt to be more than $340,000 compared to other creditors who initiate action at an average of $93,000.”
Who knew!! I’ve never seen those numbers quoted before. So until now, the ATO legal collection machine would only kick into gear when debts rose above $300,000 for individuals and $340,000 for companies. Amazing! I’m sure the threat of legal action would kick in prior to those thresholds but the actual legal action apparently didn’t. So keep in mind that the ATO debt is an unsecured debt for those individuals and companies. Try and think of any other creditor that would allow a debt to increase to those levels before kicking off legal action. And also keep in mind that the ATO is very keen to help taxpayers who explain their problems and voluntarily enter a Payment Arrangement. My experience suggest that the ATO is less understanding when a taxpayer has been granted a Payment Arrangement and then defaults – that is where I hear a lot of complaints. But, I would have thought the terms given by the ATO were pretty generous so I am not sure those complaints are justified. At Dissolve, we always advise directors that if they are entering a Payment Arrangement with the ATO, then agree an Arrangement that can be met. Otherwise you are just wasting time and the inevitable.
So we know that the ATO plans to take legal action at lower thresholds in the future. The AFR reported that the new threshold for the ATO to initiate a legal action would be $93,000 for companies, but Mr Jordan didn’t actually say that. He just said “earlier”.
“The value of collectable debt was almost $19.5 billion at the end of June 2014, an increase of 10 per cent on the year before.”
That is a big number and it is getting bigger. Another indicator that the ATO is somewhat generous in its dealings with tax payers who fall into arrears.
“Under Project DO IT that closed in December 2014, 5,600 people came forward and we anticipate disclosures of around $600 million in income and $4 billion in assets…… using Exchange of Information with treaty partners (which allowed us to raise an additional $730 million in liabilities between 2012 and 2014);
And that quote helps put in context the very large high amount of “collectable debt” at $19.5 billion. You will have been hard pressed to miss the publicity surrounding the amnesties for those with foreign income and at the end of the day, that raised a hefty $730 million. But that pails into insignificance when compared to bog standard tax debt at $19.5 billion. Yes, I know where I would put my resources if I was the ATO – chasing that standard “collectable debt”.